15th Finance Commission UPSC: Recommendations, Report and Article 280

By K Balaji|Updated : February 1st, 2023

The 15th Finance Commission (XV- FC or 15- FC) is a constitutional body established in November 2017 under the chairmanship of NK Singh. The 15th Finance Commission recommendations will cover a period of five years from the year 2021-22 to 2025-26. Under Article 280 of the Constitution, the President of India must constitute a Finance Commission five years or earlier. The 15th Finance Commission, chaired by Mr. N. K. Singh, was required to submit two reports. The first report, consisting of recommendations for the financial year 2020-21, was tabled in Parliament in February 2020. The final report with recommendations for the 2021-26 period was tabled in Parliament on February 1, 2021.

Let’s discuss in detail the key recommendations of the 15th Finance Commission, which are relevant for all the upcoming UPSC Exam. The article also includes the recommendations, members and concerns regarding the Commission.

Table of Content

Finance Commission

The Finance Commission is a constitutional body tasked with determining the method and formula for distributing the tax proceeds between the Centre and states and among the states as per the constitutional arrangement and present requirements. Under Article 280 of the Constitution, the President of India must constitute a Finance Commission five years or earlier.

  • The 15th Finance Commission recommendations will cover a period of five years from 2021-22 to 2025-26 and is headed by NK Singh, a senior member of the BJP.
  • The commission was set up to recommend the devolution of taxes and other fiscal matters for five fiscal years commencing 1 April 2020. 
  • The commission's main tasks were to "strengthen cooperative federalism, improve the quality of public spending and help protect fiscal stability". 
  • The 15th Finance Commission was constituted against the backdrop of the abolition of the Planning Commission (as also the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations.

Composition of Finance Commission

Recommendations of the 15th Finance Commission

The Recommendations of the 15th Finance Commission are mentioned below. These recommendations would apply for 6 years, i.e., 2021 to 2026.

  • The distribution of tax proceeds between states and the central government is one of the recommendations of the 15th Finance Commission.
  • Study the impact of GST (Goods and Services Tax) on the Economy.
  • Provide performance-based incentives for the State Government. The incentives should be based on efforts to control the growing population and promote ease of the business and the rest of it.
  • Revenue deficit grants, grants to local bodies, and disaster management grants will be provided to the States. The Commission has also proposed a framework for sector-specific and performance-based grants.

15th Finance Commission - Members

The 15th Finance Commission's chairman is Nand Kishore Singh, a senior member of the Bharatiya Janata Party (BJP) since March 2014, with its full-time members being Ajay Narayan Jha, Ashok Lahiri, and Anoop Singh. In addition, the commission also has a part-time member, Ramesh Chand. Shaktikanta Das served as a commission member from November 2017 to December 2018.

Difference Between Vertical and Horizontal Devolution

According to Article 280 of the Indian Constitution, each Finance Commission must make suggestions and recommendations about sharing the net proceeds of the taxes between the Union and the states and also among various states of the country. The process of devolution of taxes of the union to various states is known as vertical devolution. In contrast, the process of devolution of taxes among various states is known as horizontal devolution.

Vertical Devolution in the 15th Finance Commission

Key highlights of the vertical devolution include:

  • 15th Finance Commission recommended maintaining vertical devolution at 41%.
  • Similar to that of the Fourteenth Finance Commission, it is at the level of 42% of the divisible pool.
  • The change of a per cent in the 15th Finance Commission is due to the adjustment required because of the changed status of Jammu and Kashmir, which has now become the Union Territories of Jammu and Kashmir and Ladakh.

Horizontal Devolution in the 15th Finance Commission

For the horizontal devolution, the commission has suggested the following weights:

  • Income distance - 45%
  • Area - 15%
  • Population - 15%
  • Demographic Performance - 12.5%
  • Forest and Ecology - 10%
  • Tax and Fiscal Efforts - 2.5%

Difference Between Vertical Devolution and Horizontal Devolution

Importance of 15th Finance Commission  

The 15th Finance Commission came out when gigantic reforms were being taken to strengthen cooperative federalism. The importance of the 15th Finance Commission is discussed below:

  • Braces the Concept the Cooperative Federalism: The Finance Commission has worked extensively with all levels of government to bring out this report. This has helped in the development of the principle of cooperative federalism.
  • Promotes Fiscal Stability: The Finance Commission has set out a report promoting policies to improve public spending quality. Weights at various levels have been suggested in such a way that promotes fiscal stability in the country.
  • Implementation of Good and Services Tax Reforms: The Finance Commission brought many performance-based incentives which helped in the expansion and deepening of the indirect tax. Over the years, revenue from GST has been growing tremendously.

Concerns Regarding 15th Finance Commission 

The points mentioned below analyze the concerns of the 15th Finance Commission.

  • The terms referred to for the 15th Finance Commission have raised doubts over the spirit of the cooperative centre. The use of the 2011 census for allocating resources between states is the most serious issue. Currently, the census of 1971 is used.
  • The aim and idea of using the most recent census data available is a reasonable point. The proposal for it unleashes immense dispute on the social-political front. The main reason is that it would create disadvantages for the states that have controlled the population for decades.
  • Lower Population Growth is interlinked directly with lower fertility rates. This results from better healthcare facilities, education, and development. Thus, it seems apparent that the States that have developed faster are penalized for their success in development initiatives.

15th Finance Commission UPSC

The 15th Finance Commission is an important topic in the UPSC Syllabus. To learn more about the topic and the Indian Economy, one can go through the Economy Notes for UPSC. It is also important for candidates to practice the Previous Year's Question Papers so that they know the UPSC Exam Pattern better.

15th Finance Commission UPSC Questions

Question: What is the title of the 15th Finance Commission Report?

  1. 15th Finance Commission Report
  2. Recommendations in Covid times
  3. Finance Commission in COVID Times
  4. 15th Finance Commission Recommendations

Answer: Option C

Question: The Volume III of the 15th Finance Commission Report addresses issues related to:

  1. State-specific Considerations
  2. Union Government
  3. Main Report and Annexes.
  4. Finances of Each State

Answer: Option B

Question: Who is the Chairman of the 15th Finance Commission?

  1. Dr. Y. V. Reddy
  2. G. C. Murmu
  3. Nand Kishore Singh
  4. Arvind Mehta

Answer: Option C

Other Important UPSC Notes
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Cyclone UPSC NotesOperation Twist UPSC Notes
Atal Innovation Mission UPSC NotesMajor Ports in India UPSC Notes
Cryptocurrency UPSC NotesWorld Trade Organisation (WTO) UPSC Notes

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FAQs 15th Finance Commission

  • The 15th Finance Commission (XV- FC or 15- FC) is a constitutional body established in November 2017 under the chairmanship of NK Singh. The 15th Finance Commission recommendations will cover a period of five years from the year 2021-22 to 2025-26. The commission's primary responsibilities were to strengthen cooperative federalism, enhance the standard of public spending, and assist in preserving fiscal stability.

  • The first Finance Commission was set up in 1951 and there have been fifteen so far. Each of them has faced its own unique set of challenges.

  • The Finance Commission is a constitutional body that is tasked with considering the state of federal finances and recommending the dividing of revenue streams among Union and State Governments. It is set up by article 280 of the Constitution and, while maintaining a neutral position, makes recommendations on revenue sharing.

  • The 15th Finance Commission observed that the recommended path for fiscal deficit for the center and states will result in a reduction of total liabilities of the centre from 62.9% of GDP in 2020-21 to 56.6% in 2025-26, and. the states on aggregate from 33.1% of GDP in 2020-21 to 32.5% by 2025-26.

  • Nand Kishore Singh has been named as the commission's chairman. The 15th Finance Commission's full-time members are Shaktikanta Das and Anoop Singh, while its part-time members are Ramesh Chand and Ashok Lahiri.

  • The government accepted the recommendation of the 15th Finance Commission to keep the States' portion of the divided pool of taxes at 41% for the five years beginning in 2021–22.

  • The 15th Finance Commission was constituted on 27 November 2017 against the backdrop of the abolition of the Planning Commission (also as the distinction between Plan and non-Plan expenditure) and the introduction of the goods and services tax (GST), which has fundamentally redefined federal fiscal relations.

  • The 15th Finance Commission report title is “Finance Commission in Covid Times”.

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